Agents Brewing Up Program Business for Craft Beermakers

Craft beers have been capturing an increasing share of the domestic beer market over the past decade and this specialty niche is still growing.

By 2020, America’s craft brewers will have more than 20 percent market share, according to the Brewer’s Association, a national group that represents more than 2,000 breweries nationwide. In 2012, U.S. craft brewers accounted for 6.5 percent by volume and 10.2 percent by dollars in market share. The craft brewing industry grew 15 percent by volume and 17 percent by dollars in 2012 compared with growth in 2011 of 13 percent by volume and 15 percent by dollars.

At the end of January, the Brewer’s Association counted 2,776 breweries in the United States — that’s up from less than 1,600 in 2010. The association expects the craft brewery count to run well over 3,000 by the end of 2014. In 1980, only 89 craft brewers existed in the United States.

There’s been consistent growth in breweries year-over-year since the early 1990s, says Paul Gatza, director of the Brewers Association. “Some 400-500 new breweries start-up each year and there’s nothing to show us that that pace is going to slow down at all,” he says. On top of brewers opening up shop, there’s plenty more in planning stages right now as well, he adds.

This is good news for insurance experts looking to grow their business in this specialty market.

Market Specialists

Peter Whalen, president and owner of Northampton, Mass.-based Whalen Insurance Agency, began specializing in the microbrewery market in 1986 when a craft brewer opened up shop in his agency’s town.

When Whalen wrote his first brewery no one specialized in the market and many insurers were unfamiliar with the risks. That’s changed. “The insurance market for craft brewers is quite different than those earlier days,” Whalen says. “Today a number of regional and national carriers are in the class.”

Now, Whalen writes more than 100 microbreweries; these account for about 15 to 20 percent of the agency’s total revenue.

The microbrewery industry’s recent growth is attracting newcomers to the insurance market.

“You hear about new breweries opening every day,” Whalen says. “We have three or four opening in my area right now and I’m rural.”

Whalen expects even more growth in craft brewing.

“There’s definitely more and more coming in,” he says. He expects some brewing companies won’t make it, as is the case with many new small businesses. “Some will not be able to hang in there because of the competition, but there’s going to be more coming into the market. They will merge or sell to others. There will be some shakeout of the smaller players. But for everyone leaving, there will be one coming in.”

Microbrewing is not just booming in the Northeast. It’s also growing in California, Colorado and Michigan, says Paul Martinez who manages Brewery Pak Insurance Program, a managing general agency that offers an exclusive admitted program with Great American insurance to cover the needs of breweries nationwide.

Brewery Pak launched three years ago and currently writes about 150 breweries in 42 states, British Columbia and Ontario.

Martinez, a craft beer enthusiast, says his agency saw a need for specialized coverages tailored to the microbrewery industry.

“We’ve been managing programs with Great American since 1998 — that’s when the Winery Pak program started. From that, our principal saw the opportunity with all the breweries opening, and he approached Great American to start a brewery program as well.”

There are a similarities and differences between wineries and breweries.

“Wineries have different exposures like personal dwellings on the premises. They do a lot of cased good storage off premises, whereas the breweries keep everything in one location— they have their production and storage on one location,” Martinez says.

As they grow, breweries might contract third party storage facilities to house their beer off site, but many smaller facilities store onsite.

Breweries with tasting rooms, restaurants, special events and even lodging can buy additional coverages.

Martinez says Brewery Pak will accept microbreweries of all sizes as well, even new ventures.

“I think it would be foolish for us to turn away the new ventures due to the growing number of them,” he says. “Plus we pride ourselves with growing with the breweries. We love to be there from the first step. We have a couple of clients who have already grown exponentially since we wrote them three years ago. It’s a real joy to see them flourish.”

Thus far, Brewery Pak’s performance is solid, rates are competitive, and the claims experience has been good, according to Martinez.

“We haven’t had any major claims; a couple of leakage and contamination claims which are specialized coverages that we offer in our package, and also some spoilage claims due to equipment breakdown … overall the loss ratio is very good,” the agent says.

Specialized Coverages

John Hoefer has been writing breweries for about six years overall. Two years ago, he created the Brewery Insurance program, a division of independent agency and broker Milestone Risk Management & Insurance Services based in Irvine, Calif.

“I started the program because I saw that there was a real need for some education on proper insurance for breweries,” Hoefer says. For many brewery owners, buying commercial insurance for their new business was a first, he says. Often they may not understand the coverage and that led to gaps.

“There are some specialized coverages that really need to be on the policy in order to properly protect the brewery,” Hoefer says. “Every time I came across a brewery that I didn’t insure, they were always missing.”

Craft breweries need specialized coverages similar to wineries, he says.

“They need coverage for contamination of their stock. They need coverage for leakage. They have big tanks full of beer, and they’re full for weeks on end. If it a valve breaks or a forklift runs into it, the equipment is covered, but the beer inside is not covered unless they have specialized leakage coverage,” Hoefer says.

Breweries basically need everything that a winery has for insurance protection except the winery policies weren’t adapted to fit the breweries, he says.

The type of coverages needed depends on a brewery’s classification, an important area where specialists can help, Hoefer says.

“There are a couple different classifications, and it’s based on the license classification from the state authority,” he says. There are also “production breweries” — those don’t serve any food and generally have an onsite brewery and what’s called a “tasting room” or a “tap room.”

“They can only sell their beer out of their tasting room. Otherwise, they distribute their beer to bars and restaurants,” he says.

Then there’s a brew pub. “A brew pub is actually a brewing license for a restaurant. The production breweries are essentially manufacturers that have a license to sell their own beer. A brew pub is a restaurant that has a license to brew beer,” he says. “Brew pubs have a lot of the same coverages required as restaurants, but then they also need to have specialized coverages for the brewery as well.”

One major difference between wineries and craft brewers is the land exposure, says Matthew Carlson, vice president of Risk Strategies Co.

“The big thing that’s different with wineries is obviously you have a lot of land and agriculture. It’s more of an agriculture exposure,” Carlson says. “A brewery can set up in any urban area, industrial area, or even some people are doing it in their auxiliary barn depending on what location they’re at. I have a client in a rural part of Texas and essentially their barn is the brewery and that’s where they’ll brew their beer.

What’s similar to winery owners is the sense of passion that craft brewers hold for their product — the beer.

“I love working with breweries,” Carlson admits. “I definitely spend a good chunk of my time trying to grow that business segment of my book. I just met with a client last week for lunch. We place their business, but they’re a little far up north, and I hadn’t quite made it up there yet, and she happened to be in Los Angeles. We had lunch, and she brought me beer from the brewery, and I was ecstatic.”

That’s the side bonus to working with brewery clients, he says.

California Market Expansion

California boasts about 600 microbrewers in the state and counting.

Paul Fuller, senior vice president of underwriting for Alteris Insurance Services Inc., a managing general agency based in San Francisco, helped establish a new program launched in January 2014 called Brewery Plus.

Brewery Plus, which is endorsed by the California Craft Brewers Association, is underwritten through an A.M. Best “AXV” rated carrier and is being offered exclusively through four California-based independent agencies and brokers specializing in the microbrewery space.

“The program takes out the holes and smooths out the coverage cracks for smaller to medium size brewers,” Fuller says.

Among other coverages, Brewery Plus offers contamination, leakage and profit coverage in case there’s damage to the beer and it’s destroyed. The selling price is consistent with Alteris’ winery program, which has been on the market since 2006, Fuller says. Coverages such as boiler and machinery and liquor liability can be embedded onto the general liability form. In the past, such options had only been available to larger brewers in California, he says.

The target market for Brewery Plus will be microbreweries generating $5 million or less in receipts.

This small- to medium-sized market for microbrewers is ideal for insurance programs, he says. “Our Winery Plus program gives us the scale and comfort to provide this product to what we consider a homogenous class of business. The making of craft beer and the making of wine are very similar to manufacture.”

With the maturation of the craft brewing industry, Fuller expects to see more competition in the program market for smaller to medium size brewers.

“The craft brewing space is bifurcated into large and all others. The large are those generating over 25,000 barrels a year — they have options,” he says. But the rest of the industry is still open for new insurance solutions.

Fuller expects Brewery Plus to underwrite at least 200 policies this year in California alone. “Once we have established our procedures we will look at Oregon, Washington, Colorado and the New England states.”

Fuller expects to see a similar trend in microbrewing as what happened in Napa Valley.

“We see similarities with the custom crush with the burgeoning growth in craft brew in California,” he says. “We’ll see a lot of start-ups and a lot of individuals staking their claim and making a-go of the manufacturing of specialized craft beers.”

Another fan of the craft beer insurance world is The Horton Group’s Tom Cassady, a sales executive based in Chicago. While insuring microbreweries is a newer market for The Horton Group, the agency has been writing risks in the food and beverage manufacturing space for years.

“I came to Horton about a year ago and saw a need for this in the industry, so I’ve been working on building it for about a year now,” Cassady says. “We’ve got about five breweries in the book now, most of them are on the smaller end, but have met with upwards of 30 breweries in the last year, in varying shapes and sizes.”

Cassady says the microbrewery insurance is underdeveloped in the industry and there is a need for more specialized attention. “So it’s something we’re putting a lot of time into.”

“They’re manufacturers, especially once you get to the size of the really mature breweries— that’s where they really are a manufacturer,” he says. “We feel with our manufacturing expertise that we are able to apply what we already have in-house to the needs they have.”

Cassady has only seen a few agencies in the Midwest targeting the small to medium-sized microbrewery market. “The smaller ones aren’t getting the attention they need in the industry,” he says. “There are only a few agencies I’ve run into across the Midwest that writing these guys.”

Cassady sees lots of opportunity in the Midwest for microbrewery business going forward. “At some point we may get to a saturation point, but at this point, we’re not seeing that happening, especially in the Chicagoland area; there’s new breweries opening all the time.”

Plus, it’s a fun industry to be a part of, he says. “I’m a big beer drinker myself, and I don’t brew beer, so this is a way for me to be involved in the industry, and add a little bit of what I do, with the guys that I like hanging around with.”

Carlson of Risk Strategies also sees a bright future for craft brewers. He enjoys working with emerging industries and was one of the first producers in California to target food trucks.

“I know it sounds weird, but you get these people that are very passionate about their product — whether that’s a technology product or that’s beer — there’s a potential for one of those tech companies or one of those breweries to become the next Google,” he says.

He relates the craft brewers market to California’s technology market. Owners are young. They are female and male. They come from all walks of life. Either they just graduated and got their brewery degree, or they took their passion for beer and turned it into a new career.

“I have one person where it just so happened that a brew house came up for sale and they were selling the brewery manufacturing part of the business, but not the restaurant part. My client decided to buy the brewery part and start a business. Now 10 years later they’re doing great and expanding.” Before the beer making venture, one of the co-founders was in the construction safety management field, he says.